Thursday’s report that sales of previously owned homes fell by 3.5% in July is bad news for the housing market because pending sales—signed contracts for home purchases—had increased in May and June.

The report is also troubling because mortgage rates are falling to their lowest levels in more than 50 years. So while housing is more affordable than at any time in the last 15 years, demand doesn’t appear to be benefiting.

Put another way, affordability is losing out to confidence. The stock market slump and concerns about an economic slowdown are spooking buyers, leading them to bail on deals or to demand lower prices from sellers.

“Sellers have to ask themselves how many people woke up this morning and said, ‘It’s a good day to buy a house,’” says Glenn Kelman, chief executive of brokerage Redfin Corp. “Volatility puts people on the sidelines. The crazier it gets, the more cautious they become.”

The housing market has been too weak for too long to help the economy. And now, the economic recovery could be stalling, which would pull the housing market back into the dumps.

“People are freezing,” says Mark Zandi, chief economist at Moody’s Analytics, who said he expects August’s sales figures will be even lower. “We’re obviously skating on very thin ice here.”

Other takeaways from Thursday’s housing report:

Where’s the urgency for buyers? While low mortgage rates certainly don’t hurt, some analysts say the Federal Reserve’s statement last week that it would keep interest rates at ultralow levels for two years has made it easier for would-be buyers to hang tight. The Fed’s guarantee “removed some urgency among homebuyers, resulting in more cancellations, fewer contracts written, and even more negotiations,” wrote Jody Kahn, vice president at John Burns Real Estate Consulting in Irvine, Calif. “The power seems to have shifted even more toward home buyers.”

Watch out at the top. The stock market rout could have a particularly sharp bite on sales of luxury properties. Over the past year, the mid-to-high end of the market has fared slightly better than the low end of the market. Older, more affluent buyers tend to be most affected by declines in the stock market.

A silver lining, or is it? Housing inventories fell in July by 1.7% from June. But that could be a pyrrhic victory if listings are falling because buyers are simply giving up. And because demand is slumping, the amount of time it would take to clear the backlog of unsold properties rose in July to 9.4 months.